2022 (9) TMI 1136 - AT - Income Tax

Unaccounted business receipts - difference between the yearly estimated professional receipts and actual total professional receipts offered by the assessee in her return of income - loose papers were found only for one month on the basis of which the professional receipt of the entire year was estimated - CIT-A restricted addition - HELD THAT - CIT(A) has held that he is agreed with the contention of the assessee that the actual receipt for the whole year is bound to differ from month to month and variations are possible depending on seasons, climatic changes, festivals, vacations, etc. and the gross receipts cannot be the net profit of the assessee. On comparison of the return if income for earlier years, the ld CIT(A) held that the assessee has offered substantially higher gross professional receipts. Thus, effectively the assessee has offered additional receipts of Rs.26,24,725/- as actually earned by her against the alleged difference of Rs.33,09,438/- on the basis of extrapolation method. It was also held that the theory of extrapolation is not logical for determining the actual total Income and it is established law that the assessment should be made on the basis of only incriminating documents found during the course of survey proceedings. We find that the finding of the ld CIT(A) is based on sound reasoning that the incrimination material was found for the month of Feb-2014 and the income for remaining months was estimated, which may be differ, depending on various factors. Before, us the assessee vehemently argued that the NP ratio of the assessee for this year is substantially higher comparative to earlier years - we find that the ld CIT(A) restricted the addition of considering all the facts and the evidence on record. In view of the above discussions, we do not find any merit in the grounds of appeal raised by the assessee, thus, we affirm the order of ld CIT(A). In the result, the grounds of appeals raised by the assessee are dismissed. Penalty u/s 271(1)(c) - HELD THAT - CIT(A) while deciding the appeal in quantum assessment held that the assessee has already declared income on higher side compared to the earlier assessment year. In our view the additions in the quantum assessment was restricted on the basis of different view taken by ld CIT(A). Though, we have affirmed the order of ld CIT(A), still we are of the view that the assessee has neither concealed the particulars of the income nor furnished such facts which leads to furnishing of inaccurate particulars. Thus, in our considered this in not a fit case for levy of penalty under section 271(1)(c) of the Act. Hence, we direct the assessing officer to delete the entire penalty under section 271(1)(c). In the result, the grounds of appeal raised by the assessee are allowed.

Summary

Issues Involved:
1. Addition on the quantum assessment.
2. Validity of penalty levied under Section 271(1)(c) of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Addition on the Quantum Assessment

The assessee, a proprietor of a pathology laboratory, filed a return of income for A.Y. 2014-15 declaring Rs. 23,74,710/-. During a search action under Section 132 of the Income Tax Act, incriminating documents were found, leading to an assessment of suppressed receipts of Rs. 35,00,000/-. The assessee initially accepted this but later did not reflect it in the return of income, leading to an addition of Rs. 35,00,000/- by the Assessing Officer (AO).

Upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] noted that the addition was based on loose papers found for only one month (February 2014), which were extrapolated to estimate annual receipts. The CIT(A) found this method illogical and reduced the addition to Rs. 6,33,339/-, based on actual incriminating evidence for February 2014. The assessee argued that only the profit element in the unaccounted receipt should be taxed, not the entire receipt.

The Tribunal upheld the CIT(A)'s decision, agreeing that the estimation method was not logical and that the addition should be based on actual incriminating documents. The Tribunal also noted that the assessee had shown a substantial increase in gross receipts compared to the previous year, supporting the CIT(A)'s restricted addition.

Issue 2: Validity of Penalty under Section 271(1)(c)

The AO initially levied a penalty of Rs. 10,81,500/- for the addition of Rs. 35,00,000/-. The CIT(A) restricted the penalty to the addition of Rs. 6,33,339/-. The Tribunal found that the assessee had shown higher income compared to previous years and that the addition was based on a different interpretation by the CIT(A). The Tribunal concluded that the assessee neither concealed income nor furnished inaccurate particulars, thus directing the AO to delete the entire penalty under Section 271(1)(c).

Conclusion:

The appeals regarding the quantum addition were dismissed, affirming the CIT(A)'s restricted addition of Rs. 6,33,339/-. The appeal concerning the penalty was allowed, directing the deletion of the entire penalty under Section 271(1)(c). The Tribunal's decisions were based on logical reasoning and the actual evidence on record.